Biopharma: The Waiting Is The Hardest Part

by: Michael J. Ray

Often times one can find great inspiration and truths through song and music. Nowhere is this more evident than investing in speculative biomedical stocks that are on the verge of breakthroughs of new medical discoveries. Dealing with this type of investing brings to mind a specific song by Tom Petty and the Heartbreakers. The song title is "The Waiting" and its chorus is the most appropriate depiction of any investor who has invested their money into these types of stocks. The chorus is as follows:

"The waiting is the hardest part

Every day you see one more card

You take it on faith, you take it to the heart

The waiting is the hardest part"

These words ring true to any biopharma investor. One can do an inordinate amount of research and comb through every SEC filing, but in the end they are forced to wait for a particular event to validate their beliefs. The event can be a FDA ruling or the result of a Phase 3 trial, but either way the waiting for the outcome is the hardest part. This is not difficult to see cause as one waits for the epic event to occur, doubt and fear work their way into the equation via many forms such as prolific naysayers, unfounded rumors, and in some instances outrights market manipulation. In the end though, the waiting does finally come to an end and the truth, whether good or bad, is revealed for all so see. Listed below are some of the companies whose investors are having to endure this hardest part and exactly what they are waiting for.

Antares Pharma Inc. (AIS): The waiting game for AIS is actually almost over. This small pharmaceutical company has a business line that focuses on self injection technologies, but what most investors are excited about is the topical gel-based products. The company and investors are waiting for the FDA ruling on the company's gel- based product Anturol, for overactive bladders, which is expected to happen sometime by the end of 2011. As investors wait, they focus on the fact that 33 million adults in the United States suffering from overactive bladders, and that makes for a market that exceeds $1.8 billion. That should be enough to get anyone excited. One entity who is not going to wait any longer is Watson Pharmaceuticals who announced an exclusive licensing agreement to commercialize AIS’s topical gel product in the U.S. and Canada.

As investors wait for the FDA, AIS released 2nd quarter financial results for investor to mull over. Total revenues were $3.5 million and $3.1 million for the three months ended June 30, 2011 and 2010, respectively, an increase of 16%. For the six months ended June 30, 2011, the company’s total revenue increased to $7.1 million, or 11%, from $6.4 million in the first six months of 2010. The total operating expenses were approximately $3.7 million and $3.6 million for the three months ended June 30, 2011 and 2010, respectively, and were $7.3 million and $7.2 million for the six months ended June 30, 2011 and 2010, respectively. Included in total operating expenses was noncash stock based compensation expense related to options, restricted and performance stock awards of $438,000 and $233,000 for the three months ended June 30, 2011 and 2010, respectively, and $909,000 and $566,000 for the six months ended June 30, 2011 and 2010, respectively. The net loss per share was $0.02 for the second quarters of 2011 and 2010, and decreased for the six month period to $0.03 in 2011 from $0.04 in 2010, primarily due to an increase in revenue and gross profit resulting in a reduced net loss, along with an increase in weighted average common shares outstanding. Finally as of June 30, 2011, Antares had approximately $33.3 million in cash, compared to approximately $9.8 million at December 31, 2010. The net increase in cash and cash equivalents of $23.5 million in the first half of 2011 was due primarily to the public offering of 14,375,000 shares of common stock at $1.60 per share, which resulted in net proceeds of approximately $21.3 million.

Unlike AIS, Keryx Biopharmaceuticals, Inc (NASDAQ:KERX) investors are going to be in for a longer wait. KERX is a biopharmaceutical company focused on the acquisition, development and commercialization of medically important pharmaceutical products for the treatment of life-threatening diseases, including cancer and renal disease. KERX actually has two drugs in the pipeline but it will be Perifosine, which is their oral anti-cancer drug that has investors excited. The drug is designed to treat advanced colorectal cancer. Perifosine was derived from a commercial license agreement in 2002 with Zentaris AG, which is a wholly owned subsidiary of AEterna Zentaris Inc. One of the Phase 3 trials dealing with the colorectal cancer aspect is set to have its primary completion date by December of 2011 and the study is set to be completed by February of 2012. Perifosine’s second Phase 3 study dealing with multiple myelomas and does not have its primary completion date until September 2012 and a study completion date of October 2012. In addition to these ongoing Phase 3 studies, the KERX is also exploring the drug in Phase 1 and 2 clinical development trials for several other tumor types.

This longer wait on results will obviously weigh on investors, but if finally successful the market for KERX will be huge. For example, the American Cancer Society states that colorectal cancer is the third most common form of cancer diagnosed in the United States. It is estimated that over 141,000 people will be diagnosed with some form of colorectal cancer in the United States, with over 49,000 patients dying from colorectal cancer in 2011. As Perisosine is intended to be used on a wide variety of cancers, one can see that this company might well be worth the wait.

Recently the company released 2nd quarter financial statements where they stated that the company had cash equivalents, interest receivable and investment securities of $52.5 million, as compared to $28.5 million at December 31, 2010. In May 2011, the company completed an underwritten registered offering of common stock, which provided proceeds to the company of approximately $30.8 million. The net loss for the second quarter ended June 30, 2011, was $3.1 million, compared to a net loss of $5.2 million for the second quarter in 2010, representing a decrease in net loss of $2.1 million. Management also stated that since the solidifying of the balance sheet with cash from the registered offering, they believe they are well capitalized to execute on their business plan.

Another company whose investors have had a particularly long, and painful, wait is BioCryst Pharmaceuticals, Inc. (NASDAQ:BCRX). Unlike other companies, BCRX and their antiviral drug Peramivir was thrust into the limelight during the influenza scare back in 2009. Peramivir was approved for emergency use and for a while it seemed that the drug was going to be stockpiled on a massive scale to be used to combat the deadly flu. Needless to say, the influenza epidemic never really took hold and the stock price took a hit from the lofty heights it went to during the scare. As speculators took advantage of the situation and jumped in and out of the shares, BCRX investors waited for the normal course of business to occur.

Peramivir is currently under a Phase 3 study for adults and adolescents who are hospitalized due to serious influenza and look to have an estimated primary completion date of April 2013 with a study completion date of May 2013.

With all the hype Peramivir has gotten, investors often forget BCRX also has another drug (BCX4208 for gout) that is completing multiple Phase 2 program trials. One trial is scheduled to be complete sometime during the fourth quarter of 2011 while the other will be done in early 2012. True to form though, news out of Asia and the United Nations once again warn of a possible resurgence of the deadly avian flu virus. If this new flu makes itself a threat, there is little doubt that BCRX will once again be placed front and center and the share price will become volatile.

The next company that has investor waiting is Dendreon (NASDAQ:DNDN). But unlike the other companies in this article that are waiting for FDA approval or trial results, DNDN investors are waiting on demand. The company has passed the FDA approval and even has multiple manufacturing sites up and running. Investors thought the hardest part was behind them until recently when DNDN announced that they were pulling their sales forecast for the year on their prostate-cancer drug Provenge. To add to this, the sales of Provenge were $49.6 million which was well short of the $57.7 million that many analysts expected. As a result, the share price fell over 67% and traded into the low teens where it sits today.

According t the company, shareholders will have to wait as DNDN educates doctors about the $93,000 treatment and a decision by the U.S. Medicare and Medicaid programs to pay for the drug. Also as a result, DNDN will reduce its expenses and eliminate positions to meet the lower demand for the product. It is easy to see that once again for DNDN investors, waiting will be the hardest part to this story.

BioSante Pharmaceuticals (BPAX) is the next company who has their investors waiting on some important upcoming events. BPAX is a specialty pharmaceutical company focused on developing products for sexual health and oncology. Investors are fixated on a couple of products the company has in the pipeline. The first is Bio-T-Gel which is a once-daily transdermal testosterone gel in development for the treatment of male hypogonadism, or low testosterone levels. Male hypogonadism generally is characterized by impotence, a lack of sex drive, muscle weakness and osteoporosis. Bio-T-Gel is licensed to Teva Pharmaceuticals (NYSE:TEVA), and a NDA is pending with the FDA having a PDUFA date of November 14, 2011. While investors wait for the final word from the FDA, they can take some comfort knowing that the transdermal testosterone market for men in the U.S. is over $1.2 billion.

If that was not enough, BPAX also has another drug LibiGel which is designed to safely improve women's sexual desire and the frequency of satisfying sexual events. BioSante is conducting three Phase III LibiGel clinical studies and a new drug application is planned to be submitted to the FDA in 2012. So it is safe to assume that investors will have to wait a bit more before all the cards are on the table for BPAX.

Finally there is Advanced Cell Technology (ACTC.OB) whose investors are anxiously awaiting some initial results from the Phase 1/2 trials dealing with human embryonic stem cell (hESC). Investors held their breath on July 14th as the company announced the dosing of the first patients in each of its two Phase 1/2 clinical trials for Stargardt's macular dystrophy and dry age-related macular degeneration (dry AMD) using retinal pigment epithelial cells derived from human embryonic stem cells (hESCs). The initial dosing was a relatively small (50,000 cells) and early indications are that the patients tolerated the surgical procedures well. The primary objective of these studies is to assess the safety and tolerability of these stem cells, but clinical research and animal studies suggest that even this small does might have measurable improvement in the patient’s sight.

Waiting for any word has been hard for investors as they have had to contend with the revival of a couple of old lawsuits that have resurfaced recently. Add to this a large number of outstanding shares and dwindling cash reserves and you get some nervous investors. In the end though, if ACTC can prove their science and halt macular degeneration they will stumble into a $30 billion market with relatively no competition. At that point ACTC will have enough bankroll to then pursue other more lucrative procedures using their stem cells. Until that time, the waiting will definitely be the hardest part for the shareholders of ACTC.

In conclusion, there are many other companies out in the market place who are waiting for some key event to occur. The above is just a sample of some of the more publicized trials and events that are occurring. When it is all said and done though, it seems that Tom Petty’s song just about sums it up for the industry as a whole.

Disclosure: I am long DNDN, KERX, ACTC.OB.